One election to rule them all, FOMC to follow
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The US election will push the FOMC into second place this week
Wall Street closed higher on Friday, despite weak hurricane-distorted, Non-Farm payroll data. US bond yield fell on the data, usually a tailwind for equities, with decent results from Amazon also offsetting pre-election nerves. The S&P 500 rose 0.41%, the Dow Jones gained 0.69%, and the Nasdaq climbed 0.80%.
Elsewhere US election nerves were prevalent. The US Dollar strengthened on Friday with USD/JPY rising 0.63% to 153.00, EUR/USD falling 0.46% to 1.0834, and the dollar index (DXY) rising 0.41% to 104.32. Although nearing overbought on its relative strength index (RSI), investors hedging US election risk could see the DXY test resistance at 104.80.
Gold finished slightly lower on Friday, down 0.27% at $2,733.25 an ounce. Markets have clearly been buying gold as a US election volatility hedge of late. However, the charts suggest momentum may be waning in the short term, and a correction lower to $2,600.00 can’t be ruled out after the dust settles on Tuesday.
Oil prices moved sideways on Friday, Brent crude and WTI closing almost unchanged.
A holiday in Japan and pre-election sitting on hands is likely to keep activity in Asia muted today. In China, the Standing Committee of the National People’s Congress (NPC) starts its four-day meeting. US Factory Order rounds out the session.
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Tuesday sees China’s Caixin Services PMI and the latest Reserve Bank of Australia (RBA) rate decision. Whether the RBA finally cuts by 0.25% or not is a complete lottery.
Speaking of lotteries, the US election results will start rolling in on Wednesday morning Asia time. Past experience suggests we will see a lot of intra-day volatility in FX, gold and US equity futures. The closer and more undecisive the election result is, the messier markets will be. Watching the whole mess from the sidelines with a cup of tea and some pretzels could be a smart strategy for investors.
Thursday sees rate decisions from the Bank of England and the US Federal Reserve. Markets have priced on a 0.25% cut for each.
Friday could see more stimulus announcements from China’s NPC in the form of bond issuance. If the US election result is still uncertain by Friday – entirely possible – none of the above will matter.
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